Feedgrain Market Outlook & Pricing Opportunities Grain Sorghum School Ness City, Kansas February 29, 2008 Daniel OBrien & Mike Woolverton K-State Research and Extension

Historic vs Current Grain Prices Crop Average 2007/08 Mkt Yr USDA Est. KC MO. Feb. 28, 08 Grain Sorghum $2. 20 /bu $3. 65 – $4. 15 /bu $5. 23 /bu Corn $2. 24 /bu $3. 75 – $4. 25 /bu $5. 36 /bu Wheat $3. 35 /bu $6. 45 – $6. 85 /bu $ /bu Soybeans $5. 66 /bu $ – $ /bu $ /bu

Land in Crops (Millions of acres) 5 yr. Ave. 07/08 USDA Proj. 08/ yr. Ave. 07/08 USDA Proj. 08/09 1 Corn (-4%) Soybeans (+11%) Hay (--) Wheat (+6%) Cotton (-13%) Grain Sorghum (-4%) Principle Crops CRP (-3%) 1 Estimates for corn, soybeans, wheat, and cotton from the USDA Commodity Outlook Forum, released February 22, Total crop land in the United States – million acres 2 Total crop land in the United States – million acres

Feedgrain Markets: Corn & Grain Sorghum

Current Feedgrain Market Factors U.S. Feedgrain stocks are adequate Feedgrain supplies not as tight as for wheat & soybeans Large 2008 crop (12.5–13.0 billion bu) needed to meet demand U.S. Ethanol demand continues strong Strong demand from overseas export buyers Reduced production in Argentina (dry Dec-Jan) & Mexico (lower area than expected), increases in South Africa (good rains) Southern hemisphere corn export competition to increase seasonally. Expected competition for U.S. crop acres vs other crops in Spring 2008 (bidding during Feb-May)

MAY 2008 Corn Futures Contract Volume & Open Interest CBOT: April 2006-February MAY Old Crop Corn Contract

Ness City, Kansas Cash Grain Sorghum Price De Bondurant Grain Co., Ness City, Kansas March 2, 2007 – February 28, 2008 Source: DTN Bid Analyzer $4.97 /bu on 2/28/08 Basis: $0.46 /bu under CBOT March 2008 Corn

Ness City, Kansas Cash Corn Price De Bondurant Grain Co., Ness City, Kansas March 2, 2007 – February 28, 2008 Source: DTN Bid Analyzer $5.30 /bu on 2/28/08 Basis: $0.13 /bu under CBOT March 2008 Corn

December 2008 Corn Futures CBOT: Jan 2006-February New Crop Corn Contract Contract Volume & Open Interest

Wakeeney, Kansas New Crop Grain Sorghum Prices Midwest Coop, Wakeeney, Kansas March 2, 2007 – February 28, 2008 Source: DTN Bid Analyzer $5.18 /bu on 2/28/08 FC Basis: $0.47 /bu under CBOT DEC 2008 Corn

Scott City, Kansas New Crop Corn Prices Scott Coop Assn., Scott City, Kansas March 2, 2007 – Feb. 28, 2008 Source: DTN Bid Analyzer $5.51 /bu on 2/28/08 FC Basis: $0.14 /bu under CBOT DEC 2008 Corn

U.S. Corn Supply-Demand

Dynamics of U.S. Corn Usage USDA USDA USDA USDA 2006/ /08 est. (Mln. Bu.) 2006/ /08 est. (Mln. Bu.) Feed and Residual 5,598 5,950 1 (+6%) Food, Seed, and Industrial 1,371 1,355 2 ( ־ 1%) Ethanol for Fuel 2,117 3,200 (+51%) Net Exports 2,125 2,450 (+15%) Ending Stocks 1,304 1,438 (+10%) Total Usage 11,21012,995 (+16%) Production 10,53513,074 (+24%) 1 Assumes DDGS retain 30% of the feed value of corn and are included in the feed and residual category by the USDA. 2 Industrial, food, and seed less ethanol.

U.S. Grain Sorghum Supply-Demand

U.S. Corn Planted Acreage Projected 2008

U.S. Corn Yields Trend Yield

U.S. Corn Production Projected 2008

U.S. Corn Food, Seed & Industrial Use 1973/74 thru 2007/08 Marketing Years

U.S. Ethanol Industry at a Glance Number of operating ethanol plants: Under construction or expanding: Announced plants: 300 (17%) 100 (?) Current production capacity: (BGPY) Projected production capacity: 11.7 BGPY end of BGPY end of 2009 Feedstock Use Proportion: Corn 97% Sorghum 2% Other 1%

Corn Demand Increase Due to Ethanol Development Corn Quantity Corn Price D Corn D Corn w. Ethanol

Short Run Ethanol Effect on Prices Corn Quantity Corn Price D Corn D Corn w. Ethanol Short Run Supply ( Corn Crop & Stocks) Q P SR P0P0

Ethanol vs RBOB Prices April 2007 – February 2008 (Source: DTN)

Ethanol Plant Profitability February 2007 – January 2008 (Source: DTN)

Long Run Effect of Ethanol on Corn-Feedgrain Prices Corn Quantity Corn Price D Corn D Corn w. Ethanol S Sht Run Q 07 P SR Long Run Supply ( Corn Supplies) P LR Q

U.S. Corn Exports 1973/74 thru 2007/08 Marketing Years + Projected 2008/09

Total U.S. Corn Use 1973/74 thru 2007/08 Marketing Years

World Coarse Grain Supply-Demand 2005/06 thru 2007/08 Marketing Years

Production of World Coarse Grain Exporters 2005/06 thru 2007/08 Marketing Years

Exports of World Coarse Grain Exporters 2005/06 thru 2007/08 Marketing Years

World Corn Supply & Demand Global production up 9% from 2006/07. Use up 7% Production will be MMT (212 mil. Bu.) less than Usage World Ending Stocks to decrease MMT from last year, down to 13 % of Usage. Million MT

U.S. Corn Ending Stocks Corn Ending Stocks as a % of Usage

U.S. Corn Stocks/Use% vs Price

Wheat Markets

Current Wheat Market Factors World wheat stocks at a 30 year low Global shortage of quality milling wheat Strong support for U.S. Hard Red Spring Wheat prices Weak U.S. dollar & Lower Ocean Freight Rates Helping U.S. wheat exports Wheat export regulations in Argentina & Russia Attracting speculative interest to U.S. commodity markets U.S. wheat acreage & production concerns in 08 HRS vs soybeans in upper Great Plains; HRW production Need for greater 2008 U.S. / World wheat production in to rebuild stocks.

MAY 2008 HRW Wheat Futures KCBT: February 2007-March MAY Old Crop HRW Contract Contract Volume & Open Interest

Ness City, Kansas Cash Wheat Prices De Bondurant Grain Co., Ness City, Kansas March 1, 2007 – Feb. 28, 2008 Source: DTN Bid Analyzer $11.55 /bu on 2/28/08 Basis: $0.80 /bu under KC March 2008 Wheat

July 2008 HRW Wheat Futures KCBT: April 2006-February JULY New Crop HRW Contract Contract Volume & Open Interest

Scott City, Kansas New Crop Wheat Prices Scott Coop Assn., Scott City, Kansas March 1, 2007 – February 28, 2008 Source: DTN Bid Analyzer $10.71 /bu on 2/28/08 FC Basis: $0.60 /bu under July 2008 KC Wheat

March 2008 Hard Red Spring Wheat Contract Volume & Open Interest MGE: April 2006-February MARCH Old Crop HRS Contract

U.S. Wheat Supply-Demand

U.S. Wheat Planted Acreage Projected 2008 Kansas HRW Acres Seeded down by 500K in 2007/08

U.S. Wheat Yields Trend Yield

U.S. Wheat Production Projected 2008

U.S. Wheat Exports 1973/74 thru 2007/08 + Projected 2008/09

World Wheat Supply-Demand 2005/06 thru 2007/08 Marketing Years

Production of World Wheat Exporters 2005/06 thru 2007/08 Marketing Years

Exports of World Wheat Exporters 2005/06 thru 2007/08 Marketing Years

U.S. Wheat Ending Stocks Wheat Ending Stocks as a % of Usage

U.S. Wheat Stocks/Use% vs Price

Impact of Scarce U.S. & World Wheat Supplies on Prices Wheat Quantity Wheat Price D Wheat S Large Supply S Medium Supply S Short Supply Q LS Q MS Q SS P SS P MS P LS Marketing Loan$

Soybean & Oilseed Markets

Current Oilseed Market Factors Brazilian soybean area up only 1% Recent South American rains helping soybean crop High soymeal-soyoil prices & exports High soyoil prices damaging U.S. soydiesel industry Weak U.S. dollar & lower ocean freight rates helping soybean exports Attracting speculative interest to U.S. commodity markets Critically low U.S. carryover Only 19 days inventory on hand at end of 2007/08 Need for U.S. acreage & production increase in 2008 to rebuild stocks

March 2008 Soybean Futures CBOT: December 2006-March MAY Old Crop Soybean Contract Contract Volume & Open Interest

Ness City, Kansas Cash Soybean $s De Bondurant Grain Co., Ness City, Kansas March 1, 2007 – Feb. 28, 2008 Source: DTN Bid Analyzer $13.65 /bu on 2/28/08 Basis: $1.34 /bu under CBOT March 2008 Soybeans

November 2008 Soybean Futures CBOT: January 2006-February NOV New Crop Soybean Contract Contract Volume & Open Interest

Scott City, Kansas New Crop Soybean Prices Scott Coop Assn., Scott City, Kansas March 1, 2007 – Feb. 28, 2008 Source: DTN Bid Analyzer $13.14 /bu on 2/28/08 FC Basis: $1.25 /bu under CBOT NOV 2008 Soybeans

U.S. Soybean Supply-Demand

U.S. Soybean Planted Acreage Projected 2008 Acreage

U.S. Soybean Yields Trend Yield

U.S. Soybean Production Projected 2008

U.S. Soybean Exports 1973/74 thru 2007/08 Marketing Years

World Soybean Supply-Demand 2005/06 thru 2007/08 Marketing Years

Production of World Soybean Exporters 2005/06 thru 2007/08 Marketing Years

Exports of World Soybean Exporters 2005/06 thru 2007/08 Marketing Years

U.S. Soybean Ending Stocks Soybean Ending Stocks as a % of Usage Forecast

U.S. Soybean Stocks/Use% vs Price

Impact of Scarce U.S. & World Soybean Supplies on Prices Soybean Quantity Soybean Price D Soybeans S Large Supply S Medium Supply S Short Supply Q LS Q MS Q SS P SS P MS P LS Marketing Loan$

Long Run Grain Market Perspectives

Crop Acres Coming Out of CRP 2007–2017 (Source: USDA, FSA)

Prices 1 and Price Ratios 05/0606/0707/08 Corn $2.00$3.04$4.00 Soybeans Wheat SB/Corn Wheat/Corn SB/Wheat Prices are actual and USDA projected average farm prices. 1 Prices are actual and USDA projected average farm prices.

Long Run Grain Prices USDA Long Run Average 2007/08 Projection Wheat $3. 35 $ $6. 85 $ $5. 50 Corn $2. 24 $ $4. 30 $ $4. 50 Grain Sorghum $2. 20 $ $4. 20 $ $4. 40 Soybeans $5. 66 $ $ $ $8. 50 Sunflowers$ $ $ $15 - $17 1 National marketing year average price per unit,

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